Propping up market through floor price main reason
The impact of the Covid-19 pandemic has been less for the key index of the Dhaka Stock Exchange (DSE) even as bourses in other Asian and developed countries have been confronted with serious impacts.
The country’s prime bourse, Dhaka Stock Exchange (DSE), recorded a negative index return of -16% between the last week of February and July 17, according to an analysis.
During the period, the Indian NIFTY50 index fell by 37%, followed by 29% by the Pakistani KSE, 33% of USA S&P500 and 41% for Sri Lankan SPLK20LP.
BOVESPA index of Brazil posted the highest loss, plummeting by 44%.
However, the Chinese SSEC index declined by only 13% during the period, the lowest slump during the same period.
Talking to Dhaka Tribune, market analysts and insiders attributed the lower impact to the securities regulator’s floor price system that has prevented the index from falling much.
Over the last six months, the DSE key index declined by 483.65 points, shedding Tk 28,080.9 crore from market capitalization.
During the Covid-19 period, the Canadian S&P TSX index fell by 36%, followed by 32% by the UK’s FTSE 350, 35% by the Italian FTSE MIB, Germany’s DAX by 36%, Japanese Nikkei 225.31% and Australian ASX 200 index declined by 36%.
Two stock exchanges remained closed from March 26 to May 28, as the government had announced general holidays as part of its efforts to contain the spread of the coronavirus pandemic.
On March 19, BSEC launched a new circuit breaker to halt the free fall, yielding a positive outcome for the indexes.
The new emergency circuit breaker rule was set so that the prices of securities would not slip below their average prices from the previous five sessions – from March 19.
Later, a section of market insiders demanded a withdrawal of floor prices.
Selim R. F. Hussain, Managing Director of Brac Bank Limited, has said the floor price has been the biggest loss for the stock market. A liquidity crisis had emerged in the market due to the floor price, he added.
“In addition, brokerage houses and merchant banks are slowly closing down their entities due to the system. If it stays for a few more months, institutional stakeholders will disappear from the market,” Selim Hussain said.
The floor price mechanism will be lifted after normalcy returns to the market, according to a senior BSEC official.